Residential building activity drops, triggers investor caution

The Activity Index for Residential Building fell by 4.8 points in the September 2018 quarter, causing a loss of optimism in the sector.

The index currently sits at 55.0 points, compared with 59.8 points in the previous three-month period. As a result, the survey’s Expectations Index has also fallen by 1.9 per cent in September, suggesting industry professionals anticipate continued weakening in the next six months.

“Residential building is being hit by tighter finance availability as well as the softening of house prices in Sydney and Melbourne over the past year. These factors are likely to drag new home building lower over the next few years,” said Master Builders Australia chief economist Shane Garrett.

Mr Garrett also highlighted concerns that proposed changes in policy will further detriment the sector’s capacity to meet the demand of a growing economy and bigger workforce.

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He cited recently released modelling from Cadence Economics that implies proposed restrictions on negative gearing and CGT would see up to 42,000 fewer homes built over a five-year period. This is enough housing to accommodate 100,000 Australians.

“These latest survey results show that residential building is already cooling. We don’t need to weigh it down even more,” Mr Garrett said.